Ancient Fable Retold

W. A. Paton is Professor Emeritus of Accounting and Economics, University of Michigan. He is author (or co-author) of a score of books and many articles, largely in the field of accounting. Since his retirement at Michigan, he has continued his writing and lecturing activities and has done part-time teaching at a dozen colleges and universities, in ten states.

References to the proverb associated with the fable I propose to relate are not especially rare, but I have been unable to find the old tale itself in print, anywhere. The story was told to me back in 1913, either by Professor Fred M. Taylor, my revered mentor in economics, or Walton H. Hamilton, one of his corps of assistants in the basic course in principles. Since I’m reasonably sure that few — if any — of the present-day teachers of economics are familiar with the version of the fable as I heard it, sixty-odd years ago, it may be permissible to retell it, particularly for the purpose of expressing the moral to be drawn and applying it to current conditions in our college and university classrooms.

The Fable

Way back in the heyday of the Persian Empire one of the ancient rulers developed a keen desire to learn more about economic activity in his far-flung realm. He knew that many kinds of farm products and other goods were transported for long distances to the capital and other central markets, but he realized that in his palace isolation, surrounded and waited upon by a host of servants and retainers, he was cut off from the processes of production and exchange and knew nothing about the underlying factors that stimulated and guided those engaged in these basic activities. He made inquiries among his generals and other officials with whom he had contacts, and even consulted leading astrologers and soothsayers, but found no one in these groups who could enlighten him. Carefully disguised, he attended some classes taught by professors of philosophy and related subjects, but to him their lectures were boring and confusing. What he wanted was a down-to-earth, common-sense outline of fundamentals, not a lot of mystic jargon.

Finally, discouraged and irritated, he drafted a proclamation, and had it distributed in printed form throughout the empire, in which he promised a royal office, and one of his beautiful daughters in marriage, to the man who would provide him with a simple, understandable statement, in writing. (In those days it was unthinkable that any female would undertake such an assignment.) But the proclamation also specified that anyone making the attempt, and failing, in the emperor’s judgment, would be promptly executed by beheading.

Nine months passed, and then a teacher from the top school at the capital showed up with a two-volume study which he had prepared with great care, after much pondering and stargazing. The emperor scanned a page or two and then — in a fury — threw the books at the author and ordered him to the block forthwith. Perhaps the fact that he had listened, in disguise, to two of this man’s lectures, had a bearing on his very speedy and unfavorable decision.

The summary execution of a leading scholar and teacher was not announced by the palace, but the news leaked out and naturally cast a chill over possible candidates for royal honor and a princess to boot. Several years went by and the proclamation had been generally forgotten, and was no longer a matter of special concern to the ruler himself — although he may have been a bit disappointed that only one of the empire’s professors had lost his head. Then a wandering magician and juggler, from a far country, ran across a copy of the old proclamation in one of the provinces and some weeks later showed up at the palace, asking for an audience with the emperor. He said he had come to try his skill at providing the essence of economics in a brief and plain statement. He also admitted that he was well aware of the risk he was running. The audience was shortly granted, and after making a very graceful obeisance before the throne the mountebank handed the emperor a slip of paper on which he had written — translated into modern English — "There is no such thing as a free lunch". The ruler happened to be in a good mood. He read the statement a couple of times, started chuckling, and finally laughed heartily. He jumped down from his dais, lifted the kneeling visitor to his feet, ordered a purple robe for him, and in due course, and with appropriate ceremony, made him governor of a province and saw to it that he was married to his youngest daughter.

The Moral

More than nine words are needed to lay even a preliminary foundation for the serious study of modern economic activity, but still the adage provided by the old fable points the way. In launching the introductory course in economics we should get down to earth, stress the underlying problems and difficulties encountered by human beings, at any stage of development, and regardless of social arrangements and organization, in their efforts to "make a living" on this rugged planet. For this purpose there is merit in giving some attention — at the onset — to the primitive situation, where the consumer is largely his own producer, and is brought face to face with requirements and limitations. And there are still groups in this world eking out an existence under very primitive conditions. Even the old Robinson Crusoe approach need not be disdained.

What is needed is a primer of fifteen or twenty pages to supplement the main textbook which starts out with the fundamental truism of economics: We can not consume what we do not produce, an adaptation of the message the mountebank brought to the emperor long ago, according to the fable — also nine words. This undeniable fact of economic life is particularly appropriate for American students, as it’s quite obvious that no foreign nation is going to play Santa Claus to the United States. Overall, we must look after ourselves. The teacher at this stage might also mention the old saying among our farmers: The horse can’t drink without water in the trough. The family-size farm is no longer a major economic institution, and the tractor has largely replaced the horse, but even the city boys and girls of these days will get the point, and have their interest aroused.

Of course this is only a bare start — the lesson for the first class session. But it pushes the door of understanding ajar. It brings to light the fact that production is the primary economic process, on which consuming is totally dependent, and thus stresses the need for efficiency in productive methods and utilizations of available resources. It also raises a warning hand with respect to the danger of becoming unduly preoccupied with the forcible redistribution of output, without regard to the possible unfavorable impact on the volume of output, and resulting per-capita standard of living.

Then the more difficult questions can be tackled. How do we define production and "economic" goods, in the light of the varying attitudes and desires of consumers? Sooner or later the question of non-productive activity must be faced up to. At an early stage attention must be given to the problem of identifying the basic factors of production, including the role of the saver, the fund provider. Resort to the primitive situation may be helpful here, with a return to this subject later in the course. With a foundation laid the examination of the modern industrial economy can begin, with its advanced technology, high degree of specialization, network of markets, complex of monetary and financial facilities, corporate and other institutional arrangements, with an end result in the form of an astonishing array of consumer commodities and services (including durables).

Stifled by Socialism

In trying to characterize the present system briefly, above, I didn’t mention government. But in the serious study of the system I see no point in giving lip service to the idea that we still have a "free enterprise", "free-market" system, although this posture is popular in some circles. The plain fact is that we are living in a quasi-socialistic economy. The processes of production and exchange are being carried on under the weight of a bewildering, overlapping array of bureaucratic interferences and controls. I’m among those who firmly believe that both historical and current experience demonstrates that the competitive free market is the most effective and equitable instrument that mankind has discovered as a means of allocating productive resources and awarding shares in output. Assuming this position to be sound it still doesn’t follow that today’s teacher should close his eyes and those of his students to the conditions actually prevailing. Quite the contrary. A clear understanding of the current situation, built on a background of recognition of fundamentals (as I’m recommending), is necessary to forming an intelligent judgment on the crucial question: Where should we go from here?

My observation is limited but I believe I am justified in suggesting that the approach in teaching the introductory course in economics often fails to include adequate emphasis on elementary, fundamental considerations. As I see the situation today’s teachers often plunge too quickly into the complexities of the present system. They are often unduly enamored with statistics of "gross national product" and other aggregates, and rely heavily on mathematical models. Many instructors are socialistically inclined these days, to begin with, and their methods of teaching tend to reinforce this inclination.

I’m not personally optimistic that there will be an early abatement of the tide of sheer economic nonsense from which we are suffering, or that our advance toward complete collectivism will soon be checked. But I would see a ray of hope if there were some modification of the teaching of elementary economics, especially in the colleges and universities, in the direction I have tried to indicate. Our educators have a great impact on the minds of their students, and these young people will soon be running the show.

***

Robbed for Their Own Benefit

Ever since the advent of representative government placed the ultimate power to direct the administration of public affairs in the hands of the people, the primary instrument by which the few have managed to plunder the many has been the sophistry that persuades the victims that they are being robbed for their own benefit. The public has been despoiled of a great part of its wealth and has been induced to give up more and more of its freedom of choice because it is unable to detect the error in the delusive sophisms by which protectionist demagogues, national socialists, and proponents of government planning exploit its gullibility and its ignorance of economics.

THE FREEMAN

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December 2014

Unfortunately, educating people about phenomena that are counterintuitive, not-so-easy to remember, and suggest our individual lack of human control (for starters) can seem like an uphill battle in the war of ideas. So we sally forth into a kind of wilderness, an economic fairyland. We are myth busters in a world where people crave myths more than reality. Why do they so readily embrace untruth? Primarily because the immediate costs of doing so are so low and the psychic benefits are so high.